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Bond funds face redemption

Aabhas Pandya

Bond funds have seen assets under management shrink by nearly Rs 17 billion in March with total corpus dropping 12 per cent to Rs 123 billion. In fact, the redemption would have been higher but is not reflected due to a steady rise in net asset value, which marginally sets off the impact of the outflow. The month of March traditionally sees redemption from corporate investors on account of year-end consideration. While some big-ticket investors want to beef up the balance sheet, some others do not want to reveal these investments.

"This year, debt funds also attracted some short-term investments since the going was expected to be good with most AMCs waiving off loads. That money has also moved out (from funds),'' says an official with a mutual fund. The first quarter of the current calendar has been buoyant for bond funds, which posted an average return of 4.23 per cent (annualised return of 16.92 per cent) on the back of three successive rate cuts including reduction on assured returns on small saving instruments.

Among the worst hit due to redemption is Escorts Income Bond, which has seen its corpus shrink by a massive 56 per cent to Rs 160 million on March 31, 2001. Some of the bigger debt funds like Alliance Liquid Income and Magnum Bond have also lost over 15 per cent of their asset base, with an outflow of Rs 2.70 billion and Rs 1.25 billion respectively. On the other hand, there are just three funds, which have seen a net inflow.

However, unlike 2000, when bond funds had resorted to panic selling to meet redemption, most funds held a reasonable cash exposure in anticipation of repurchases. For instance, DSPML Bond held an average 15 per cent in cash during the month with redemption of Rs 1.20 billion or roughly 12 per cent of its asset base of Rs 9.89 billion in February. In fact, last month saw a net purchase of Rs 3.75 billion from funds in the bond markets against net sales of Rs 2.50 billion in March 2000.

While money has moved out from bond funds, asset management companies are not perturbed since most of the outflows will come back in the new financial year. With equity markets in doldrums, AMCs plan to aggressively sell bond funds this year, backed by budget sops like a lower dividend tax and reduction in section 80L limit to Rs 9,000.

Year-End Pressure!

Fund	Assets Under Management (Rs crore)
	February '01	March '01
Escorts Income Plan	38.00	16.58
Dundee Bond PSU	4.85	2.94
IL&FS Bond	106.27	76.02
ING Income Portfolio	263.73	198.28
Alliance Liquid Income	1178.50	907.77
Magnum LIF	748.00	622.14
Reliance Income	257.59	216.31
K Bond Deposit	223.16	191.14
KP Income Builder	584.19	504.21
Sun F&C Money Value Bond	230.05	198.82

Source: Value Research

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